Thursday, September 9, 2010

Garuda Considers Offloading Struggling Budget Carrier

Faisal Maliki Baskoro | September 08, 2010
Citilink is struggling to get off the ground in the face of stiff competition from other domestic budget carriers. Citilink is struggling to get off the ground in the face of stiff competition from other domestic budget carriers.

Jakarta. National airline Garuda Indonesia is considering spinning off its sputtering low-cost subsidiary Citilink Indonesia into a separate company, senior officials said on Wednesday.

Muhammad Said Didu, secretary to the state-owned enterprises minister, said Garuda was hoping to reduce the burden Citilink was putting on its bottom line.

“Citilink is struggling to turn a profit,” Didu said. “Competition in the low-cost carrier sector is quite tough. Garuda should spin off Citilink and focus on improving its performance ahead of its IPO.”

In February, Garuda announced plans for an IPO by mid-year, but the share sale has been pushed back and is now expected in November.

Garuda’s acting finance director, Elisa Lumbantoruan, confirmed there was a plan to spin off Citilink but it would not be any time soon, and certainly not before the IPO.

He said Garuda was just waiting for the right moment. “There’s no urgency to spin off Citilink. We’re going to carry out our IPO this year, so we’re focusing on that,” Elisa said.

Citilink posted revenue of Rp 300 billion ($33.3 million) in 2009, suffering losses in the process. The carrier is aiming for revenue of Rp 700 billion this year, which may be enough to turn a profit.

Last year Garuda abandoned a plan to acquire other small and financially troubled airlines in an effort to support Citilink, deeming the move too costly.

It opted instead to build up the airline internally by adding new planes to its fleet. But now it looks like Garuda is ready to let go of Citilink completely, rather that strain to keep the carrier afloat.

Didu said that, initially, the plan to improve Citilink as a low-cost carrier appeared profitable, but in practice, the airline was hurt by fierce competition with other budget carriers such as Lion Air.

He also cited a different “culture” between Garuda and Citilink as one of the reasons to spin off the low-cost airline.

“Garuda’s culture is first-class flying, while Citilink is a low-cost carrier. It’s better that the two of them continue separately,” Didu said.

Citilink is targeting 1.2 million passengers this year. Its fleet consists of four Boeing 737-300s and one Boeing 737-400.

Citilink is planning to acquire a further eight planes this year using a grant from Garuda. According to Elisa, Citilink is short on pilots and is looking to hire more. “We need around 80 pilots to fly the fleet,” he said.

The low-cost carrier currently flies between Surabaya and five domestic locations, and between Jakarta and Medan. It is planning to open four additional routes this year.

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